Thursday, April 30, 2015

Interestingly, the UPS website
longitudes.ups.com,
last summer, republished an article by University of Oxford's Carl
Benedikt Frey called The
Future of Work. Evidently,
someone at UPS intuitively understands that the jobs of 435,000
UPS workers (worldwide) may be in jeopardy, threatened not only
by drone delivery but (more immediately) by developments like Shyp,
which is analogous to Uber in its ability to put drivers out of work.

To quote from the Frey article:

Throughout
history, technological progress has created enormous wealth but also
caused great disruption. The United States’ steel industry, for
example, underwent a major transformation in the 1960s, when large,
integrated steel mills were gradually put out of business by mini
mills, destroying the existing economic base of cities like
Pittsburgh, Pennsylvania, and Youngstown, Ohio. The mini mills,
however, vastly increased productivity, and created new types of work
elsewhere.

The story of
US steel illustrates an important lesson about what the economist
Joseph Schumpeter called creative destruction:
Long-run economic growth involves more than just increasing output in
existing factories; it is also implies structural changes in
employment.

We can observe
a similar phenomenon in the current information and communications
technology (ICT) revolution, which has affected most areas of the
modern workplace, even those not directly associated with computer
programming or software engineering. Computer
technologies have created prosperous new businesses (even
business clusters) while making certain manufacturing workers
redundant and sending older manufacturing cities into decline.

But the likes
of Detroit, Lille, or Leeds have not suffered because of falling
manufacturing output; on the contrary, output has been growing in
these cities over the past decade. Instead, their decline stems
directly from their failure to attract different types of jobs.

To
a large extent, this is a failure of policy. Rather than trying to
preserve the past by propping up old industries, officials should
focus on managing the transition to new forms of work. This requires
a better understanding of emerging technologies, and how they differ
from those that they are supplanting.

An important feature of
the Industrial Revolution’s early manufacturing technologies was
that they replaced relatively skilled artisans, which in turn
increased demand for unskilled factory workers. Similarly, Henry
Ford’s assembly line for manufacturing cars – introduced in 1913
– was specifically designed for unskilled workers to operate
machinery, thereby allowing the company to produce its popular Model
T – the first car that middle-class Americans could afford.

Already one can feel various dubious
assumptions creeping into the discussion. Saying that the "likes
of Detroit" have suffered from "failure to attract
different kinds of jobs" implies that Detroit is responsible for
keeping its citizens employed; that it is all a matter of
"attracting" jobs (with what? incentives for the 1%?). We
have heard this sort of thing before in the hollow rhetoric of the
various ambassadors from Kochistan who constantly tell us localities
are not doing enough to favor business, as if we need to be
giving more (and more, and more) tax handouts and incentives to
business in order to ensure employment; clearly an extortionist
proposition (which hasn't worked). By blaming Detroit's problems on
"a failure of policy," blame is neatly deflected away from
capitalistic players, toward public-sector players (politicians), a
queer argument by the 1% for more central planning.Frey correctly notes, however, that the
Industrial Revolution replaced relatively skilled artisans with
unskilled factory workers. In today's world, the same effect is not
hard to see, as programming jobs go to India or Romania or Russia
(etc.) and U.S. programmers are left to find
part-time/benefits-reduced and/or less skilled work at
WalMart wherever they can find
it.Later in his article, Frey says "And
it is not far-fetched to imagine the likes of Google’s self-driving
cars making bus and taxi drivers redundant one day," completely
ignoring the fact that Uber has already
put 100,000 cab drivers out of work,
cut cab requests in San Francisco by 65%, and reduced the value of a
NYC medallion by $200,000 in less than a year.

Let's be clear. The new "job creators" of this
economy are companies like Google and Facebook and Apple, and they
are not contributing much in the way of jobs. Apple, for example,
outsources almost all of its manufacturing activity to other
countries. If we look at a sample of tech companies and the number of
people they employ, relative to their size (represented by market
capitalization), we get:

Company

Employees

Market Cap ($ million)

Apple

93000

759000

Amazon

154000

207000

Facebook

10082

229000

Google

53600

389000

Twitter

3638

33640

LinkedIn

6897

32260

Microsoft

128000

387000

Oracle

122000

190000

Yahoo

12500

41680

VMWare

18000

37910

The ten companies shown employ a total of
601,717 people but have a market cap of $2.3 trillion. Thus it takes
$3.8 million in market cap to create one tech job. Compare this with,
say, UPS, which has a market cap of $90.9 billion but employs 435,000
worldwide (according to the company's
website), which means it takes $209,000 of market cap to create
one UPS "service sector" job.

From a market-cap point of view, a company
like UPS is 19 times better at creating jobs than a tech
company. Perhaps more accurately, it could be said that tech
companies are 19 times better at "creating value" than UPS.
But, value for whom? Shareholders? Most employees of these
companies are indeed shareholders as well. But there are precious
few of them. Tech does not create large numbers of jobs. That's
the bottom line.

"But you're comparing apples and
lemons," someone will say. "You can't compare a company
like UPS to a tech company, they're entirely different." Yes,
but the question is whether we want our future to look more like
Apple, or more like UPS. Are jobs, in this economy, trending more
toward tech-based enterprises, or more toward conventional service
jobs? Isn't the influence of tech creeping into even the most
UPS-like of companies? And doesn't it have the effect of making
companies more efficient, better able to produce "value"
with fewer employees? That's the point. The main effect of
technology is to reduce employment.

The typical comeback is to say that
historically, people who have been displaced by technology always
seem to find work in other jobs, new types of jobs. Which has been
true, historically. But what if the "new types of jobs"
are all in technology? Then we're screwed. Because there aren't
enough of those jobs to go around (see table above). And we
ship them overseas regularly.

This is a fundamentally different era than
the Henry Ford era (when Americans moved off of farms, into factories
and urban centers), with an employment problem that cannot be solved
with "better policy" aimed at more handouts to the "job
creators." The "job creators" are doing better than
ever, thank you (without creating an excess of new jobs). It's
the rest of us, frankly, who need a break now.

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